The Daily Market Report: Gold Remains Rangebound as Markets Await Outcome of 11th-Hour Greece Negotiations
24-Jun (USAGOLD) — Gold dipped a little deeper into the recent range, slightly exceeding last week’s low. However, the overall tone remains broadly consolidative as markets await the outcome of the eleventh-hour Greek negotiations.
Creditors reportedly rejected Greece’s most recent proposal, which was quickly followed by Greece rejecting the counter-proposal. It seems no movement has really been achieved and the only thing keeping optimism elevated is the realization that some kind of accord must be reached — and soon — or Greece will be forced into default. But, hope alone does not get a deal done . . .
An FT article this morning suggests that some in the European Commission have been trying to push the IMF out of the negotiations. That’s an interesting turn of events, as the IMF is the organization that is due a €1.5 bln payment on Tuesday.
German finance minister Wolfgang Schäuble apparently took exception and demanded the commission “stop blaming” the IMF for the stand-off. Schäuble went on to reiterate that he will not sign-off on any deal that the IMF will not approve. That does not bode well for a deal.
According to BusinessInsider, a Goldman Sachs report shows in four charts just how dire the Greek situation has become:
Public debt is about 75% larger as a portion of the economy than it was in 2007, GDP has been cut by a quarter (a Great Depression-like reduction) and money has flooded out of Greek banks.
In some ways, the story is actually worse than it looks. Though the acceleration in Greece’s debt to GDP ratio was slowing down in 2014, the subsequent crisis mean it’s probably picked up again. Greece is now back in recession. — BusinessInsider
Since 2010, Greece has already received more than €230 bln in bailout funds. The last tranche, a measly €7.2 bln, is what hangs in the balance for the current negotiations.
As the Goldman report suggests, after five-years the situation in Greece has gone from terrible to horrific. And that’s with what amounts to about a year’s worth of GDP injected into the economy by the troika.
If they do manage to reach a deal to release the €7.2 bln, it does nothing but buy them a very little bit of time. UBS suspects that they will be out of money again by the end of August. At that point, the choice will be default or try and secure a third bailout.
I suspect rallying support for a third bailout will be exceedingly difficult across Europe. In continually delaying what appears to be an inevitability, Greece and its creditors may amplify the fallout to the point of another economic crisis.
